Your credit reports and scores can determine whether you get a home mortgage, qualify for an apartment or a car loan, even land certain jobs. They’re hugely important, and the information contained within them can change lives. So the stakes are pretty high, right?
Well, just to add a little more pressure to the equation, there’s some talk about expanding what goes into those reports and generates those scores, namely: taxes you may owe the federal government.
The IRS could use credit reports as collateral for unpaid taxes.
Of course, they already do to some extent, but there are rigorous legal restrictions on sharing personal tax information with third parties. Currently, once the IRS places a lien against you for unpaid back taxes, that lien then shows up on your credit reports. But, in most cases, you have to be pretty seriously delinquent for that line to be crossed and, by then, your scores have likely taken hits from other unpaid debts.
And if you owe a small amount and haven’t owed it long, the IRS (despite seeming all-powerful) still has limited resources and manpower, so it may focus on bigger fish. According to the Government Accountability Office (GAO), more than half of all individuals and businesses that owe back taxes owe less than $5,000, while those owing more than $25,000 make up $310 billion of the estimated $373 billion in total outstanding tax debt—so it’s clear who would take priority.
But Uncle Sam wants ALL his money…and he’s not necessarily above strong-arm tactics to get it.
That’s why some in government are now proposing placing unpaid tax bills that haven’t even met the lien threshold on your credit reports and scores. The fella in the red, white and blue suit and star-spangled top hat is doing his best tough-guy impression, saying in effect, “nice credit report ya’ got there…be a shame if anything was to happen to it.”
If this change were made, and you didn’t pay up, the IRS could take your financial future hostage—even if you’re small-time in the big scheme of things.
If enacted, the effects on the credit market would be massive.
So far, it needs to be said, no action’s been taken. And this isn’t a new idea—it’s come up before and been put down.
Opponents have argued it’s an aggressively coercive measure that could backfire, prodding otherwise law-abiding people to purposely underreport income or look for other tricks and dodges. Meanwhile, civil libertarians oppose the idea for a whole host of other reasons.
And there would still be a glut of details they’d have to debate and decide, such as how low the unpaid tax-bar would be. Would $5,000 be enough to make it onto your credit reports? $2,500? One thin dime? Who gets marked with the scarlet letter—and where would it stop?
Mistakes on credit reports are already frighteningly common—just imagine adding a federal bureaucracy into the mix. The potential for damage could be great.
It’s definitely worth keeping an eye on. So, stay tuned to the Quizzle blog. We’ll keep you up-to-date on this possibly game-changing development.
While nothing’s happened yet, you may want to make doubly sure you’re square with Uncle Sam before he denies you that home, car, or the larger life you want to live.
What do you think? Could this be a case of government overreach? Or is it a logical way to make sure everyone’s playing by the same rules? Comment and let us know.